1. Labor economics A Hokkaido University Fall 2015 Yukiko Abe Hokkaido University, Japan 1© Yukiko Abe 2015 All rights reserved

2. Reading: writing and craft of research in economics Read the materials in [1] of “On research, writing, & publishing” (slide # 3) and: – State the points that you find useful or interesting; explain the reasons briefly. – State the points that you disagree, and explain why. Length: 3-4 pages, double-spaced, in English Due: November 19 th 14 pm., by e-mail to abey@econ.hokudai.ac.jp 2© Yukiko Abe 2015 All rights reserved

3. [1] On research, writing, & publishing (available in the internet) Dixit, A. “My system of work (not!)” Passion and Craft: Economists at Work, ed. Michael Szenberg, University of Michigan Press, 1998. – http://www.princeton.edu/~dixitak/home/dixitwrk.pdf Fullerton, D. General & Specific guidelines for writing research papers – http://business.illinois.edu/dfullert/writing-general.pdf http://business.illinois.edu/dfullert/writing-general.pdf – https://dl.dropboxusercontent.com/u/35757123/writing-specific.pdf Moffitt, R. “Getting published in economics journals,” CSWEP newsletter, Spring 2011 – http://www.aeaweb.org/committees/cswep1/newsletters/CSWEP_nsl tr_SprSum_2011.pdf 3© Yukiko Abe 2015 All rights reserved

4. [2] On research, writing, & publishing (available in journals) Hamermesh, D. (1992) "The Young Economist's Guide to Professional Etiquette," Journal of Economic Perspectives, v. 6, iss. 1, pp. 169-79 Thomson W. (1999) “The Young Person’s Guide to Writing Economic Theory,” Journal of Economic Literature, Vol. 37, pp. 157–183, sections 1 & 2 Hamermesh, D. (2000) “The Craft of Labormetrics,” Industrial and Labor Relations Review, Vol. 53, No. 3., pp. 363-380. 4© Yukiko Abe 2015 All rights reserved

5. [3] On research, writing, & publishing (available in books) Goldin, C. “The Economist as Detective” Passion and Craft: Economists at Work, ed. Michael Szenberg, University of Michigan Press, 1998 McCloskey, D. Economical Writing, Second Edition, Waveland Press, 2000 5© Yukiko Abe 2015 All rights reserved

6. Things to note Paragraphs and topic sentences Introduction Detailed rules of writing Rewriting! Read aloud 6© Yukiko Abe 2015 All rights reserved

7. Term paper and its preparation Each student must submit a term paper Due date for the term paper will be notified later (close to the end of the semester). Due dates: (1) November 30 th, 14 pm., (2) close to the end of semester (the exact date will be notified later) Presentations: a short presentation in November (discuss topics), and a longer one in January. 7© Yukiko Abe 2015 All rights reserved

8. Presentation & Term paper assignment Perform an empirical exercise and write a term paper. The topic can be anything from labor economics (discuss with the instructor if you wish to write something other than labor economics). Try to write simply and clearly: Follow the guides and tips from the assigned materials. During the course, make two presentations in order to get feedback. Revise the paper by incorporating the comments. 8© Yukiko Abe 2015 All rights reserved

9. Those who will be attending the class Write an e-mail to the abey@econ.hokudai.ac.jp, stating that you will be attending the class, by October 7 th, 13 pm.abey@econ.hokudai.ac.jp Obtain Borjas’s book (earlier edition is OK). Read Chapters 2, 3, 4. Obtain materials in [1]-[3] above, to the extent you can. 9© Yukiko Abe 2015 All rights reserved

10. The unemployment rate [1] What is the level of the unemployment rate in Japan, in the latest statistics? [2] What does it measure? [3] How is it measured? Five minutes 10© Yukiko Abe 2015 All rights reserved

11. 11 Measurement of the Labor Force Status Definitions of labour force measures in the Labour Force Survey in Japan are available at the following website: http://www.stat.go.jp/data/roudou/pdf/defini t.pdf Borjas, Chapter 2, Section 2-1

12. © Yukiko Abe 2015 All rights reserved 12 Japan’s case: Labour Force Status of those aged 15 or over Labour force participants – employed Workers Workers who are taking leave – unemployed Those who are out of labour force – Among those who are age 15 or over, who are not employed and who are not unemployed

13. Employed The “employed” consists of two types: who worked and who are employed and out of work. Those who worked for pay (wages, salary, benefits, in-house revenue) for more than 1 hour (1 inclusive), during the survey week. If a family member of the self-employed worked without pay for the family business, then she is included as “employed.” Who are employed and out of work: Those who have a job but did not work at all during the survey week. [1] salary or wage earners who are supposed to receive salary or wages, or, [2] the self-employed who holds his business and it is less than 30 days since he stopped working. © Yukiko Abe 2015 All rights reserved 13

14. © Yukiko Abe 2015 All rights reserved 14 Unemployed Those who do not have job and therefore did not work during the survey week Who are able to work immediately During the survey week, either searched for a job (including the case he was waiting for the results of the job search activity done before), or were preparing for starting his own business.

15. © Yukiko Abe 2015 All rights reserved 15 Labour Force Participation Rate Definition Among the population aged 15 or over, what is the percentage of people who are willing to work?

16. Unemployment rate (definition) Definition “Unemp” in the numerator is the number of the unemployed Among the labor force, what is the fraction of unemployed people? This statistic is calculated from the Labour force survey in Japan (latest statistics??) 16© Yukiko Abe 2015 All rights reserved

17. Basics of labor supply Consider the problem of time allocation using the optimization framework. It is an application of microeconomics. Maximize utility subject to the budget constraint. We have the Slutsky equation in microeconomics, in which the effect of price on demand is decomposed into income and substitution effects. It is much used in understanding labor supply. © Yukiko Abe 2015 All rights reserved17

18. Slutsky Equation (general presentation) Decompose the outcome of good ii into income and substitution effects: The effect of change in keeping income constant The effect of change in keeping utility constant © Yukiko Abe 2015 All rights reserved18

19. Slutsky Equation (cont.) ： Substitution effect ： Income effect at the beginning of income effect is because of the Shepard’s lemma © Yukiko Abe 2015 All rights reserved19

20. Compensated and Uncompensated demand functions The compensated demand functions are the demand when utility is kept constant (Hicksian demand function) The usual demand functions (called Marshallian demand function) are the ones in which income is kept constant. © Yukiko Abe 2015 All rights reserved20

21. Slutskey equation and the expenditure function Note the following identity holds ： Differentiate the above equation by, use the Shepard’s lemma and rearrange, we obtain ： © Yukiko Abe 2015 All rights reserved21

22. Shepard’s lemma The following relationship holds ： where is the expenditure function and is the compensated demand function. © Yukiko Abe 2015 All rights reserved22

23. Heuristic proof of the Shepard’s lemma (1) The expenditure function is as follows ： Denote the change in the LHS of the above equation as. © Yukiko Abe 2015 All rights reserved23

24. Heuristic proof of the Shepard’s lemma (2) © Yukiko Abe 2015 All rights reserved Assume that only changes. The change in the expenditure in this case is: 24

25. Heuristic proof of the Shepard’s lemma (3) Then, the main point of the Shepard’s lemma comes from the following fact: Noting that the utility is kept constant, the changes in are on the indifference curve. © Yukiko Abe 2015 All rights reserved25

26. Heuristic proof of the Shepard’s lemma (4) Recall that the condition for the cost minimization is to equate the marginal rate of substitution and the price ratio. Using the definition of the marginal rate of substitution, this is © Yukiko Abe 2015 All rights reserved26

27. Heuristic proof of the Shepard’s lemma (5) Since and move along the indifference curve, and satisfy the following relationship: On the other hand, the optimality implies: © Yukiko Abe 2015 All rights reserved27